IMF sees little room for dramatic depreciation of yuan

The International Monetary Fund on Saturday said it does not expect a dramatic depreciation of the Chinese yuan any time soon, but the multilateral agency has instruments in place to deal with volatility on account of any further devaluation.

“In my observation, China has the ability to devalue yuan completely... But I don’t expect very dramatic depreciation of the yuan,” Jin Zhongxia, executive director for China at IMF, said in New Delhi.

China’s central bank has devalued the yuan 0.51 per cent to 6.56 per cent against the dollar, the lowest since March 2011.

Last year, the Washington-based multilateral agency had included renminbi into the special drawing rights (SDR) basket.

Such a move from IMF at a time when the Chinese economy has slowed and has been overtaken by India in terms of growth rate is seen by many experts as a move by the international body to push China for a new set of economic reforms.

"Renminbi has been included in SDR. During that process, we followed the advice of IMF to establish necessary hedging instruments for exchange risks and interest rate risks. So, we have all these necessary instruments to manage the risks... We will follow the decision of the authority (Chinese government)," Zhongxia said.

China had devalued its currency twice in 2015, which had led to a crash in global equity markets, including India.

"A exchange rate that has been fundamentally determined by the market will be good both for China and the rest of the world," Zhongxia emphasised.

Created by IMF in 1969, SDR is an international reserve asset created to supplement its members' official reserves. It can be exchanged among governments for freely usable currencies in times of need.